NOTTINGHAM CITY HOMES THE BOARD 15 MAY 2014

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1 ITEM: 10 NOTTINGHAM CITY HOMES REPORT OF THE DIRECTOR OF BUSINESS SERVICES THE BOARD 15 MAY 2014 ESTABLISHING A MARKET RENT AND FOR SALE ARM 1 SUMMARY 1.1 Nottingham City Council ( NCC ) is very supportive of Nottingham City Homes ( NCH ) developing new areas of business and in particular in extending the housing choice by developing means for market rent/market sale in order to best deliver the strategic objectives for housing within the city. 1.2 This Report sets out the progress to date in developing a detailed business case for establishing a market rent and for sale arm. 2 RECOMMENDATIONS 2.1 It is recommended that the Board approve in principal that Nottingham City Homes develops a market rented and for sale arm and to bring back to Board proposals on the appropriate governance structure to deliver this new business activity. 3 REPORT 3.1 NCH, as the managing agent for Nottingham City Council the largest housing organisation in Nottingham, is well placed to extend our range of housing options with NCC s housing strategy through market renting and home ownership. This is strongly supported by NCC, and NCH will be working in partnership with NCC to deliver the housing strategic objectives. Furthermore NCH can draw on its recent experience of building new homes and the opportunity to increase jobs and employment opportunities within the construction sector The aim is to expand the number of homes within the Nottingham city area, re-balancing local housing markets by meeting the demand for tenants who no longer qualify for the housing register or who choose to live in the private rented sector, offering a greater choice of new homes for market rent and for sale Central to this activity is the opportunity to generate a profit/surplus from sale and rent revenue and for this be re-invested back into community / regeneration opportunities in the city. The Policy and New Business Committee have previously discussed the development of market rented properties as one of the main areas to explore new revenue streams for the business. 3.2 MARKET POSITIONING AND THE NCH MARKET RENT OFFER In Nottingham there is an active private rent market however, this sector

2 is characterised by a high proportion of amateur landlords, sometimes with a poor quality product and a lack of security of tenure for many residents One of the objectives is to improve the market rent offer. NCH proposes to offer longer term tenancies at more favourable conditions, which would give tenants greater security and stability, encouraging them and their families to stay for the longer term and integrate within their communities. The offer would include: Accommodation that is easy to run at a fair market price Flexible tenancy / leasing arrangements Dedicated housing manager Furnished rental packages option Energy efficient living low utility bills 24/7 Customer Contact Centre Tenancy advice and support if required Transparent fees and/or charges NCH has considerable experience and strong reputation in delivering housing services and repairs within the city. With the organisation s infrastructure in place and experience of new property development NCH is ideally placed to build these new homes and provide market rented tenancies and to develop a trusted housing brand within the city. 3.3 MARKET RENT AND MARKET SALE A possible way for setting up a market rented arm is through a subsidiary company that could provide and offer a range of services. The principal business operations would be to: 1. Develop new or refurbish homes to rent either market or intermediate; and to 2. Develop new homes for sale including shared ownership The following objectives could be proposed for the new business area: 1. Increase and improve the housing stock within the city by creating desirable new homes for market rent or sale and which enhance existing neighbourhoods; 2. Introduce fair, modern and flexible tenancies for those who choose to live in private rented accommodation or who may be unable to afford to buy their own property or access social housing; 3. Provide a financial return to cover costs and for any surplus to be reinvested within its communities The key advantages of such a business area are: That any properties within NCH are not subject to right to buy; That NCH builds an asset base upon which it will be able to secure external finance on A separate report will be brought to Board on the recommended

3 company structure for delivering market rent and market sale at a later date with full legal, governance, taxation and financial implications for the appropriate authority to set up any subsidiary company if this is determined to be the most advantageous structure to pursue. 3.4 CURRENT OPPORTUNITIES NCH is currently considering two development opportunities: NCC has a portfolio of self-contained flats in converted houses, referred to as Houses in Multiple Occupation (HIMO) and there is the opportunity to acquire a number of these properties and following improvement could be offered for market rent The second opportunity is the development of an area of council owned land. Initial indications are that this could provide a significant number of homes and has the potential to be developed as mixed tenure, offering homes for market rent, market sale including a shared ownership product and affordable housing Development and financial appraisal case for these opportunities are being prepared As NCH demonstrates its capability, then our ambition to deliver more will grow. The provision of funding to the new business area will be on a staged basis, based on performance and demonstrating that it meets its funding obligations The benefits from these outputs include: Helping to stimulate the housing market and provide a greater choice of new and improved homes; Provide additional or protect existing construction jobs; Targeting investment into improving existing homes that are currently empty and in a poor state of repair. 3.5 SECURING ASSETS NCH will need to operate on commercial terms and therefore it will need to negotiate the acquisition of assets and resources. Some of the possible options for this are detailed below: Build for market rent NCC to grant a freehold or leasehold interest in the land to NCH for a period of 999 years. Or leasehold interest based on length of loan and Residual Value of properties at the end of the project is shared equally between NCC and NCH. NCC to provide loan facility for the construction/improvement works. NCH to pay back loan interest and principal. NCH to offer an annual return on investment (a running yield) of X% per annum of new rent income to NCC. NCH has first option of acquiring freehold interest Build for market sale

4 NCH to acquire land from NCC or private sector. NCC/NCH to provide working capital / short term borrowing for payment of land and the construction works based on cash flow requirements. NCH repays funding from sale revenues. NCC offered profit share (X% of net profit) or overage arrangement- depending on land deal. NCH uses net profits to either reinvest into the development programme rent or sale or for NCH to take a dividend. The options will be further refined in the detailed business case. 3.6 RESOURCES A detailed assessment of the costs will be set out in the Business Case. The initial projects are likely to carry greater costs but as volume increases costs should reduce. 4 FINANCIAL, LEGAL AND RISK IMPLICATIONS 4.1 Financial Implications It is proposed to develop a full business case for each of the opportunities to expand our commercial activities NCH and any subsidiary will need to examine the most appropriate tax structure for delivering market rent and market sale homes. 4.2 Legal Implications The legal implications will be included in the detailed business case and external advice will be sought as appropriate. 4.3 Risk Implications NCH will need to ensure that its core business is protected from these commercial activities. A detailed risk assessment will be undertaken and is monitored as part of the ongoing project work The two key risks will be: Market rent units remaining void or suffering from extensive damage; and the inability to market and sell new homes and recover the capital investment. 5 IMPLICATIONS FOR NOTTINGHAM CITY HOMES OBJECTIVES 5.1 This project reflects our ambition to create an environment that will allow NCH to thrive, to be among the best housing organisations in the country, and a leading innovator. It demonstrates our commitment working with NCC to deliver the wider strategic goals of the community and the aspirations expressed in the Nottingham Plan and the Housing Nottingham Plan.

5 5.2 The options outlined in this report would attract new business and generate additional income. 6 EQUALITY IMPACT ASSESSMENT 6.1 Has the equality impact of these proposals been assessed? Yes (EIA attached) No (report does not contain proposals for significant changes to policies or services). EIAs will be carried out as decisions are reached on specific options. 7 BACKGROUND MATERIAL AND PUBLISHED DOCUMENTS REFERRED TO IN COMPILING THIS REPORT 7.1 Report to Policy and New Business Committee 5 February 2013 Business Case for Nottingham City Homes Developing a Market Rented Arm. Contact officers: Andrew Reynolds Interim Project Manager Tel: Andrew.reynolds@nottinghamcityhomes.org.uk Date: 8 May 2014

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